Asia’s biggest refiner, known as Sinopec, will sell 2.85
billion Hong Kong-traded shares at HK$8.45 each, 9.5 percent
less than yesterday’s close, according to a filing after the
market closed. Sinopec fell 7 percent to HK$8.69 at 11:30 a.m.
in Hong Kong, a level 24 cents above the offer price.

Sinopec’s state-owned parent bought a $2.5 billion stake in
a Nigerian oil field owned by Total SA in November and is in
talks to buy more than $1 billion of African assets from Afren
Plc, people familiar with the matter said this week. Adding oil-producing assets would help Sinopec offset refining losses
spurred by Chinese government price controls.

“Sinopec will most likely use this money to buy upstream
assets from the parent, which have better margins than the
refining business.” Gordon Kwan, a Hong Kong-based analyst at
Mirae Asset Securities, said by phone today.

Sinopec plans to use the money for “general corporate
purposes,” it said in the statement, without giving more
details. The share sale is the second largest in Asia this year,
after Industrial Bank Co.’s $3.8 billion offering last month.

Looking Overseas

Sinopec may buy $8 billion worth of assets outside of China
from its parent, China Petrochemical Corp., the Wall Street
Journal reported last month. Before the share sale, the Beijing-based company’s stock had risen 6.4 percent this year in Hong
Kong trading, compared with a 4.5 percent gain in the city’s
benchmark Hang Seng Index.

“The company will be able to enrich its shareholder base
by attracting a number of high caliber investors to participate
in the placing,” Sinopec said in the filing. The company didn’t
identify any of the investors. Lv Dapeng, a Beijing-based
spokesman for Sinopec, didn’t answer two calls made to his
office.

Sinopec has struggled under a heavy debt load and Chinese
price controls that have damped profitability from processing
fuel. Those factors have forced the Beijing-based company to
look for oil producing assets that can offset refining losses,
said Erica Downs, a fellow at the John L. Thornton China Center
at the Brookings Institution, a U.S.-based research group, in
Washington.

“It’s always been a long-term goal of the Chinese
government to reduce their holdings in the listed units of the
big three oil companies,” Mirae’s Kwan said.

Price Controls

The company’s oil and natural gas production increased 4.8
percent last year, with the majority of growth coming from
overseas assets. Overseas crude oil production increased 18
percent, while Chinese domestic output was up about 1 percent
from a year earlier.

“Sinopec has been hurt the most by these price controls
and they see upstream assets as necessary to offset any losses
in the downstream,” Downs said in a phone interview yesterday.

Sinopec’s parent China Petrochemical Corp. has
traditionally been more acquisitive overseas than its publicly
traded unit, she said.

As Sinopec seeks additional investors, buying assets from
the parent company may be the most attractive way to seek income
streams to offset refining losses, she said.

“There are probably reduced risks to buying from your
parent company to venturing overseas,” she said. “It would be
a way to build your portfolio very quickly.”